Open Innovation Going Hardware

Eric von Hippel, a professor at the MIT Sloan School of Management, focuses his research on developing strategies to identify new ideas and innovations systematically and quickly. His book Democratizing Innovation has documented how the Internet and improvements in computing have changed the innovation process. Now users have much more power.  The book is available for free download under a Creative Commons license.
Open Business first interviewed Professor Von Hippel in 2006. We went back to continue the conversation, discussing how open innovation was moving from the software to the hardware space, and what this might mean for business in the future.

Open Business: Please define what “open innovation” means to you.

Eric von Hippel:  When fields change rapidly – and innovation is changing very rapidly nowadays – terminology tends to gets confused.  Today, we have two partially conflicting uses of the term “open innovation.”  To many, open innovation means innovation based upon intellectual property that is “open” – free for all to use.  People who use the term this way tend to be interested in open source software and similarly new-emerging distributed yet collaborative business models.  Others use the term open innovation to refer to organizational openness.  They urge firms to become more open to outside ideas, and to be more willing to sell intellectual property they own, and to buy intellectual property from outsiders.  People who use the term this way tend to be interested in big incumbent companies like P&G that have a lot of patents, and that have traditionally been very closed to outside ideas. I myself use open innovation in the first of these ways – I am much more interested in open innovation as involving the free and unencumbered exchange of information.
OB: There’s lots of hype surrounding terms like crowd sourcing, co-creation, peer production, web 2.0 etc. Do you think these memes have something in common with what you describe as open innovation?

EvH:  As in the case of open innovation, the terminology hasn’t settled down yet and I would hesitate at this point to say how things will ultimately shake out.  In general, these terms involve openness with respect to information and also openness in going to outsiders for ideas.  IP tends to be open when you get ideas from multiple individuals and especially so when they build on each others’ ideas.  When that happens it becomes essentially impossible to determine who invented what and to protect it via traditional IP.

OB: Major corporations are increasingly experimenting with open innovation but it often appears more of a public relations exercise than an efficient approach to innovation.  What in your opinion makes OI an efficient approach?

EvH: Well, to me what’s really happening here is that the efficiency of open innovation  – using the term in the sense of innovation based upon open information – is getting so high that where the two are going head to head, open innovation is actually supplanting closed manufacturer innovation in many cases.  Open innovation by users is especially effective.  Since users benefit from using what they create, they are especially willing to freely reveal their designs to others – which greatly increases open innovation efficiency.
Companies can benefit from open innovation because product design represents a cost to them – and if users design innovations for free and for their own reasons, that can represent a savings to firms adopting these innovations.  An example of this is Lego. Lego generally sell packages of bricks that customers can make a particular product from – a bird or a plane or whatever is pictured on the cover of the box.  But Lego discovered that there were maybe 20,000 passionate fans out there designing their own models, compared to the maybe 50 people that Lego employ themselves to design models.  So what Lego have done is create a site called “Lego Factory”.  Here, users who develop a model can post that model online, and Lego will pack the bricks the model requires. Users can then sell their models over the Lego website and keep the profits.  And if a model is very successful, Lego might license it from the user for general sale.
The point here is that Lego have recognised that users are designing models for free and that they’re also doing market research for free because they’re showing Lego which are the most popular models.  So Lego has designed a new business model that’s complementary to and profits from this user activity.

OB: How general, how scalable, is this sort of shift in business practice?

EvH: It’s quite generally applicable.  I haven’t seen companies leaping to transfer innovation to users via open innovation, but I’ve seen them forced to do it.  I think that the old regime of manufacturer-centred innovation development is increasingly going to be under pressure and eventually pushed to the margin.

OB: While the open source way of working has proven to be quite efficient in high quality software production (eg Apache), we now see entrepreneurs adapting this open source model to hardware production ranging from mobile phones to cars. Do you think that this makes sense and could you point out some of the challenges these projects might face?

EvH: A major reason that open source software was first to adopt this innovation pattern is that software it is an information product.  Information products don’t have to be produced after they are designed – the design is the product, and is easy to distribute via the Internet. Increasingly hardware is also being designed on computers as an information product.  So I make a CAD model of whatever I want to develop and then I test it in simulation. And all of a sudden, open user innovation involving collaboration at a distance and cheap distribution of designs becomes feasible in physical products too.
Production can also increasingly be done at home.  Today high-quality, hacker-friendly components are available that people can use to put together their copy of the Internet-distributed design by themselves. Firms like Spark Fun, for example, offer components like GPS chips, that have been made easy for home hobbyists to manipulate and wire up.
Professor Leah Buechley at MIT has a wonderful example of this in practice – it’s called LilyPad Arduino. She noticed that people were thinking about decorating clothes with electronics – flashing lights and the rest of it.  What she did was take an Arduino, a little electronic controller board that is sold as open hardware, and put it on a lily pad-shaped board that people could attach conductive silver thread to. So basically people could sew a circuit onto a dress just using silver thread.  This is a great example of making a component much more accessible to people in terms of customary tools like sewing.
A second example is Bug Labs. Bug Labs sells you clip-together modules – the parts which let you make things like your own PDA or whatever – in a convenient way. Bug Labs components come in bigger chunks than, say, the LilyPad Arduino.

OB: These more open business approaches often challenge traditional approaches to commercialisation (ie you develop a product, you build it and then the more you sell the more cash you make).  Now it seems the primary product is often free or else traditional ways of protecting your investment through IP are stripped back and fall away.  While you have argued that this will speed up innovation do you think that it will alter what will be developed and produced in any other way?
EvH: What the shift to open innovation does is force apart combinations of business activities that have typically been done in a single firm like, for instance, design and production.  Now that some of these things are becoming free – for example, innovation design – producers have to learn to profit from other things that, as economists say, “complement” the free element.  For example, Lego still sells Lego blocks even if product design shifts from Lego to the user.  Producers do not go away – they just have to adapt their business models and focus on activities they can still do better than users.

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